Amid the ongoing military conflict in Ukraine and severe sanctions, Russia’s automotive market is changing as the presence of Asian automakers grows – along with their interest in filling production gaps that could be created after the possible departure of Western producers.
Most global automakers have suspended operations at their Russian production facilities as they continue talks with the government.
“We have a clear understanding that some foreign producers plan to retain both their production capacities and the supply of components to Russia,” says Minister of Industry and Trade Denis Manturov, the government’s chief negotiator.
“However, the same cannot be said of other companies,” he says. “Non-working enterprises mean non-payment of taxes and degradation of production itself.”
Talks with foreign automakers likely will last several more weeks, Manturov says. In the worst scenario, the negotiations would fail and the companies’ Russian assets would be nationalized.
Light-vehicle production capacity in Russia is running 50% below year-ago levels. Companies continuing to operate include PSMA Kaliningrad Avtotor (which produces Kia and Hyundai models), Haval, GAZ Group, AvtoVAZ, UAZ, Mazda Sollers and Isuzu.
Hyundai cited microchip shortage, not Western sanctions, for temporary shutdown of Russian production in March.
But automakers including Audi, Porsche, General Motors (Chevrolet and Cadillac), Jaguar Land Rover, Lexus and Volvo have suspended imports into Russia. In addition, new sanctions ban the import of models from the European Union and U.K. that are priced at more than €50,000 ($54,400). The U.S. has banned imports of all U.S.-made cars, including used ones.
In the meantime, the Russian government is looking to domestic and Asian automakers to replace Western companies that may end, or continue to suspend, operations in the country.
Among local manufacturers, AvtoVAZ plans to resume the production of several models with minimum foreign content starting in June or July. The company also is looking for ways to replace key imported components so it can resume building some of its flagship models to standard specifications. In addition, AvtoVAZ will switch to a four-day work schedule for three months starting June 6.
South Korean manufacturers, whose share of the Russian light-vehicle market was estimated at 25% before the Ukraine invasion, could see their share significantly increase this year. Analysts say if the sanctions and embargoes remain in effect, Chinese companies also will increase exports to Russia – possibly giving Asian automakers more than half of the market by summer.
In addition, Indian automakers including Mahindra and Tata have expressed interest in the Russian market.
Still, some Western automakers have no plans to withdraw from Russia, normally an important market for them.
One such manufacturer is Volkswagen Group Rus, which may resume operations at its Kaluga and Nizhny Novgorod plants in June or July, according to the Russian business journal Vedomosti. The German automaker’s Russian arm has not scaled back its production plans for 2022 and is paying its employees full salaries until at least mid-April, the paper notes.
Workers have been officially laid off until May 12 in part because parts supplies have been blocked at the Poland-Ukraine border. But VW is considering routing the components to the Russian plants through Turkey and Georgia, Vedomosti reports.
According to Wards Intelligence data, sales of new light vehicles in Russia fell to 59,763 units in March, down 62.5% from 159,537 a year earlier. For the year's first three months, sales totaled 279,917, down 27.7% from 387,322 in like-2021. The handful of companies reporting year-on-year sales increases for first-quarter 2022 included Chinese brands Changan, Chery, Geely, Great Wall and Guangtong.
